Shoppers love to see those two words on an online store and its products. It’s an incentive for them to complete a pending purchasing process. They go wild with excitement knowing they have one less thing to pay for.
But is free shipping good for your eCommerce business? Is it profitable and does it increase your sales?
The answers to both questions depend on a few factors. Here, we look at:
Free shipping is a marketing method used to eliminate customers’ shipping charges for approved purchases. That’s its simplest definition.
However, there are different kinds of variations to consider, including free shipping:
This eCommerce method is used because of the psychological benefits it presents to customers.
Within our own eCommerce Fuel community we often have conversations around the merits of offering a free incentive to customers. Here is a question from the forum:
After moving to a new shopping cart this year (Bigcommerce from Prostores), I now can see new statistical information and the “abandoned cart” statistic of 85% worries me (it’s about 15-25% higher than the studies I’ve seen). I’m considering “free shipping” (i.e. building in shipping costs to the selling price) to alleviate this.
Statistically, my shipping costs are 18.25% of the price the customer pays out the door. So say a simple price increase of 20% on everything will allow me to offer “free worldwide shipping”. This will likely be a boon to my international buyers as my bulky widgets are expensive to ship and them not seeing that cost could help. Sounds like an interesting and simple experiment, but I’d like to know what the experience has been for folks in this forum that have tried this out.
And the first answer in the forum conversation from a long-time member:
We offer free shipping for domestic and free with minimum order for international. Our products are small and light, and we ship USPS FCM for 97% of our orders. Free shipping for us was a no-brainer, once we realized we could ship the average order for $1.93 + a padded bag.
As a small brand in a multi-$billion sector, we need to remove every obstacle to conversion… free shipping, free returns, no-questions-asked return policy, etc… I can’t tell you that our sales increased with free shipping. I can tell you that if we didn’t offer it, we’d be out of business, since all our competitors offer it… so to be competitive, I simply had to figure out how to do it cheaper. USPS FCM.
For free shipping to be effective, it has to be applied at the right point of the purchasing cycle. Every shopper who visits an online store is at one of these points:
The fifth point in the cycle, ‘Buy’, is where the free shipping technique adds value for a customer. Once they’ve decided to buy, you can remove the thought of risks by using the term ‘free’. But if they’re not at that point and aren’t yet fully convinced by your product, free shipping will do little to convince them. Here’s why:
Customers may have to go through each stage of the cycle and be in a buying mood. And there’s no better time of year for them to find the buying spirit than during holiday seasons.
Shoppers love free shipping and that’s more than just an assumption. It’s a fact backed by research from different organizations.
Many sellers offer free shipping because customers say they want it. In fact, 73% of online shoppers say that free shipping is what they want to see at checkout.” – FedEx
Free shipping can help you succeed in eCommerce, but it shouldn’t be the only technique you use. You can learn new frameworks, proven tactics, and ideas when you’re a part of a community. eCommerce Fuel is that community. Benefit from interacting with like-minded people in your area of interest.
Yes, it can be profitable in the right circumstances. You’re guaranteed to increase conversion rates through it because shoppers love it so much. But it can also decrease your profit margins because you have to pay for it.
To make sure you’re getting the best out of free shipping offers, do the math and run simple tests.
You can start by running a basic A/B test to determine how much free shipping can cost you.
Pick a random sample of customers to offer free shipping to. Then compare your control group with your test group on the following changes:
For each of the two groups, calculate AOV, CR, and GM. Once you have these figures find the difference in each respective value between the two groups. This will enable you to find the percentage change in profit:
The percentage change in profit will be a negative value. This gives you an idea of how much more you’ll spend when offering free shipping.
You need to know how to turn that negative value into a positive number and a profit increase. Here are different ways of doing just that:
Ground shipping is a cost-effective way of transporting items to a customer.
Ground shipments are generally forwarded through freight services such as FedEx and UPS, which route smaller and larger trucks across the country to ship and deliver your products.” – ShipHawk
This method takes longer than others, but with customers willing to wait for free shipping, it’s worth trying. You can considerably reduce your expenses in this way.
When you set a minimum threshold, you can:
To figure out what your threshold should be, start by adding 10%-15% to your AOV. Say your existing AOV is $60, adding 10% to 15% will make it $66 to $69.
Once you’ve added your percentage, run the above A/B test again and look at your new results. The percentage change in profit should have a positive value. This means that you earn even by offering free shipping.
The final step in this technique is to push the offer as much as you can.
Let your customers know how close they are to the threshold as they add items. Remind them of the free shipping opportunity once they’ve reached the limit. Show them how much they’ve saved at the checkout phase.
Allow your shoppers to pay a friendly flat-rate no matter the number of orders they make. This technique is great because:
This is all about the psychology of seeing prices. Take two options for example:
A shopper is more likely to pick the option with free shipping than the one with an added charge. This works well if you’re selling products that customers won’t find on many sites.
To include shipping costs to your product prices, change the prices of items under the threshold. Add a percentage of the likely shipping cost.
For example, say you have a free shipping offer for orders of $50 and above. If an item is normally priced at $15, add 30% ($15/$50) of the shipping cost to the product price. The new price is, therefore, $19.50.
You can reduce the cost by:
You should offer this incentive if:
Avoid offering free shipping if:
Free shipping is an effective way of increasing your sales because shoppers love it. They see an added bonus through which they can save money when it’s time to buy. However, it only works for you in the right circumstances.
You can increase sales by using one or more of the following techniques:
But remember to offer free shipping when:
Photo by freepik